New Study Finds Declining Rates of Entrepreneurship

July 10, 2012

If there’s one thing Americans have faith in it’s the country’s entrepreneurial verve. Even amid high unemployment and a tepid economic recovery, we generally believe that strong entrepreneurship and upstart businesses will help steer us out of our present ditch. Media reports and sparring politicians fixate on this crucial sector of the American economy, a source of new products, new ideas, new jobs, and new wealth.

An article published today shows that America’s entrepreneurial sector is actually in deep crisis. The piece, written by Barry C. Lynn and myself in the forthcoming issue of the Washington Monthly, shows that for over a generation fewer Americans have been creating new businesses. The nation’s self-image notwithstanding, the number of new entrepreneurs – measured per capita – declined by 53 percent between 1977 and 2010. Even the share of self-employed Americans has fallen, dropping by more than 20 percent between 1991 and 2010.

Why does this matter? For one, it exposes a big crack at the base of our faith in America’s entrepreneurial vigor. It also means fewer paths to upward mobility. Owning a company has traditionally been one way for average Americans to build wealth, in the form of a business venture that can be passed on to one’s children or sold upon retirement. Fewer new business owners means fewer opportunities for families to build assets.

The article is based on a more in-depth report by our team at the Markets, Enterprise, and Resiliency Initiative, which studies and clarifies the political stakes of fewer actors accumulating greater economic power. The report, available here, finds that the declines in American entrepreneurship may in fact be starker than even our numbers show, due to flawed government measures that don’t account for whether a business is entirely reliant on a single other company, as is the case in many instances of outsourcing.

We don’t presume to identify any single factor behind the entrepreneurial decline. What we do know, though, is that this drop-off has occurred alongside drastic consolidation in almost every industry – especially those sectors most congenial to individual ownership, like retail, services, farming, and small manufacturing. Practically, this means that commerce that was once divided among tens of thousands of families – like lines of grocery and general merchandise – is now instead largely controlled by a single company, like Wal-Mart. It also means that we face fewer options when looking to sell our products, our ideas, and our work. To anyone who cares about the opportunity for owning one’s business – and the economic security and savings that it can build – the fall-off in entrepreneurship is troubling.